Deciphering the risk
universe for payment banks
Contents
Evolution of payment banks p2/ Payment banks: An overview p4/ Payment banks:
The risks p6/ Our solutions and offerings p8/ Contact us p11
2 PwC Deciphering the risk universe for payment banks 3
Evolution of
payment banks
How payment banks (PBs) came into existence
As PBs are a high-volume and low-margin business model, the costs need to be balanced with revenue to make the business sustainable.
*Based on RBI circulars, notifications and updates on the FS ecosystem Discussion paper
on the banking structure in India August
2013
RBI forms a committee on comprehensive financial services (FS) for small businesses and low-income households
September 2013
The PB journey
RBI issues draft guidelines on PBs July
2014
RBI releases a list of 41 entities for PBs February
2015
Cholamandalam Investment and Finance Company Ltd.
drops plans of setting up PBs March
2016
Tech Mahindra drops its plan of setting up PBs May
2016
RBI releases final guidelines on PBs
November 2014
RBI gives in-principle approval to 11 PBs
August 2015
IDFC Bank Ltd.
and Telenor Financial Services withdraw plans of setting up PBs
May 2016
4 PwC Deciphering the risk universe for payment banks 5
Payment banks:
An overview
Understanding the PB landscape
*Based on RBI circulars, notifications and updates on the FS ecosystem
The objective of the RBI guidelines around PBs is to promote financial prudence supplemented by a robust compliance and risk governance culture.
Key regulatory
themes Prudential
guidelines Risk
management Regulatory
reporting Corporate
governance Product guidelines
Customer service and outsourcing
Accounting
Objective
• Licenced under section 22 of the Banking Regulation Act,1949
• Governed by various provisions—the Banking Regulation Act, 1949; RBI Act, 1934; Foreign Exchange Management Act (FEMA), 1999; Payment and Settlement Systems Act (PSS Act), 2007; Deposit Insurance and Credit Guarantee Corporation Act (DICGC Act), 1961; other statutes and directives, prudential regulations and other guidelines/instructions issued by the RBI
• To further financial inclusion
• To provide low-value payment and remittance services
• Maintain CRR and SLR with the RBI
• Minimum 75% investment in government securities/ treasury bills
• Maximum 25% investment in current and time/fixed deposits with other scheduled commercial banks
Regulation Deployment
of funds
Product and services
Issuance of ATM and debit
cards Acceptance
of demand deposits Distribution of
other financial services Function as
a business correspondent
Cross-border remittance Internet
banking Issuance
of payment protection
insurance Payment and
domestic remittance
services
6 PwC Deciphering the risk universe for payment banks 7
Payment banks:
The risks
Risks associated with PBs
*Our viewpoint on PBs in India
PBs operate in a regulatory environment; therefore, balancing risks with business objectives is important.
Key risk
themes Regulatory
risk Operational
risk Reputational
risk Fraud risk Information
security risk Market/liquidity
/credit risk Strategic risk Support function
related risks are as mentioned below:
• Incorrect accounting
• Weak controls over general ledger (GL) code creation
• Weak financial statement close process (FSCP)
• Issues around segregation of duties
• Weak control over authorised signatories
• Payroll-related risks
Key risks:
• Money laundering/
terrorist financing
• FEMA non-compliance
• Domestic remittance non-compliance
• Volatility in forex rates
• Failure in delivery of services Key risks:
• Non-compliance with customers’
due diligence requirements
• Weak operational framework around KYC refresh
• Anti-money laundering (AML) framework not incorporating all the AML scenarios
• AML reporting non-compliance Key risks:
• Non-compliance with legal documentation
• Failure in delivery of products and services
• Conduct risk/mis-selling risk
• Agent/broker-related disputes
Key risks:
• Changes in monetary policy
• Changes in interest rate
• Weak behavioural analysis around deposit withdrawals
• Volatility in the securities market
• Static duration management of the fixed income portfolio Key risks:
• Non-compliance with relevant regulations
• Changes in banking regulations
• Changes in governance set-up
• Changes in government policies Key risks:
• Compromise to information security
• Cyber fraud—hacking and skimming of cards
• System downtime risk
• Failure in delivery of transactions Para-banking services
Risk universe
Acceptance of deposits Remittance services
Payment channel Regulation Funds deployment
8 PwC Deciphering the risk universe for payment banks 9
Our solutions
and offerings
PwC’s solutions help build governance blocks to manage inherent risks efficiently.
Information security
audit
Policy and process advisory
Compliance review
Internal audit/
concurrent audit Post-
licencing support
PwC has a pool of highly experienced professionals to assist you along this governance journey.
Internal financial control
Governance framework
Risk framework
Benchmarking
Regulatory advisory
10 PwC Deciphering the risk universe for payment banks 11
Notes
Contact us
Vivek Iyer
Partner
Financial Services
E-mail: [email protected] Phone:+91-22-66691173 Mobile:+91-9167745318
Dnyanesh PanditDirector
Financial Services
E-mail: [email protected] Phone:+91-22-66691000
Mobile:+91-9819446928
Vernon DcostaDirector
Financial Services
E-mail: [email protected] Phone:+91-22-66691000
Mobile:+91-9920651117
Ramkumar SubramanianAssociate Director
Financial Services
E-mail: [email protected] Phone:+91-22-66691000
Mobile:+91-9004644029
Namrata KhannaManager
Financial Services
E-mail: [email protected] Phone:+91-22-66691000
Mobile:+91-9820744071
pwc.in
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MJ/July2017-10296
